Official UK Government Statement:
The Bank of England announced on Friday that Silicon Valley Bank UK is set to enter insolvency, following action taken by its parent company in the United States.
The Bank of England confirmed in its announcement that Silicon Valley Bank has a limited presence in the UK and does not perform functions critical to the financial system.
The government and the Bank understand the level of concern that this raises for customers of Silicon Valley Bank UK, and especially how it may impact on cashflow positions in the short term.
The UK has a world leading tech sector, with a dynamic start-up and scale-up ecosystem. The government recognises that, given the importance of Silicon Valley Bank to its customers, its failure could have a significant impact on the liquidity of the tech ecosystem.
The government is treating this issue as a high priority, with discussions between the Governor of the Bank of England, the Prime Minister and the Chancellor taking place over the weekend.
The government is working at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK and we will bring forward immediate plans to ensure the short term operational and cashflow needs of Silicon Valley Bank UK customers are able to be met.
How Silicon Valley Bank Failed
Silicon Valley Bank, one of the most prominent banks in the startup/tech industry, has recently come under fire for its failure to properly handle and manage its investments and risk evaluation.
This has resulted in a significant loss of trust among its clients, which in turn led to a bank run.
One of the primary reasons for Silicon Valley Bank’s downfall was its inability to manage the larger investors and the surplus of funds.
The bank failed to think through its strategies and invested heavily in government 10-year bonds. This severely restricts their ability to handle a bank run from investor loss of confidence.
Additionally, the bank failed to adequately adjust its strategy to allow for investments from corporate clients and startups making larger withdrawals as the Fed interest hikes rose quicker than expected.
Silicon Valley Community and Recovery
Startups were particularly exposed with only $250,000 of deposits covered by the Federal Deposit Insurance Corp.’s limit.
Over 90% of the funds on deposit at the Silicon Valley Bank were over $250,000 which cause a run on the bank as investors started to suspect problems last week. The bank’s employees were unable to give credible re-assurances to the Startups
Despite being known for catering specifically to tech startups and emerging businesses, Silicon Valley Bank ultimately fell short.
The Silicon Valley community has started a fund to try and restart the bank but it is a long way from having the required funds for an intervention.
Sources: THX News, HM Treasury, The Rt Hon Rishi Sunak MP & The Rt Hon Jeremy Hunt MP.